Most people hear that two listed companies have joined together by way of a neatly-wrapped announcement, usually in the morning, that the boards of company A and company B have “reached agreement on the terms of a proposed merger of the two groups”.
It sounds as straightforward as a couple deciding to pop down to the register office, but managements know the hard work is only
beginning.
Mergers happen to make cost savings – in the case of Royal & Sun Alliance, £175m.
But there is a lot of pain along the way. Companies will usually need to merge head offices, combine administration and computer systems and generally “avoid duplication”.
This nearly always means job losses. RSA shed 5,000, while CGNU got rid of 3,000 in the UK. Most employees hear all this in breakfast news bulletins and the term “cornflakes redundancies” has arisen.
But the merger process is inevitable and managers know they must keep the goodwill of staff - of both those who are leaving and, most importantly of those who are staying.
CGNU is a company familiar with the merger process. In February 1998, Commercial Union merged with General Accident to become CGU. Towards the end of last year, this group announced it was to join up with Norwich Union to become CGNU. Norwich Union had itself, in October 1998, taken over ITT London & Edinburgh.
CGNU's Ian Frater says one way to mitigate the problem of redundancies is to make them voluntary where possible and, of course, to make the payoff attractive.
The latest merger is still in the process of bedding down but, talking of the CU/GA tie-up, he says: “I think there were a number of people who decided to retire. Many of them went out on a sum they wouldn't see in a working lifetime. There is also a very good pension arrangement.”
According to Frater: “Others choose to look for part-time work, while those not retiring take a lump sum and go off and start something new.” He cites the example of a colleague who did this and decided to become a landscape gardener.
For those remaining, he agrees that so-called “conflict zones” had to be resolved. The merged group did actually have the problem of one part having free coffee while others paid. The decision was made to make it free for all.
Where the problem existed of job duplication, CGU employed an outside organisation to interview applicants and find “the best person for the job”.
Frater agrees that there is always the major difficulty of losing key staff, “but it's a hazard of any merger.” However, it must be remebered that such people will usually be snapped up by rivals.
On the question of training staff ahead of a merger to be able to do a range of jobs, as recommended by MSF, he says: “It should be simple but in practice it's difficult.
“Staff spend 100% of their time doing their job.”
Head office functions are always a problem. GA was based in Perth and York, with Commercial Union in London. London, was inevitably made worldwide HQ, with life and pensions in York. Perth will be the HQ of “corporate partnerships”.
These kinds of arrangements are made easier with the advance of technology. RSA took a slightly different approach to the redundancy issue at the time of its change.
While the company also hired a firm of outside consultants, it largely made its own decisions on staffing, with representatives of each of the old companies.
“You have to do it yourself or it becomes astronomically expensive,” says Chris Evans, UK Human Resources director.
He says speed is essential in a merger, but he admits: “In retrospect we could have spent more time on the process.”
In tackling the problem of divergent cultures, RSA took the view that is was better to create brand new conditions of employment rather than try to tackle the individual areas of conflict.
“That way you can kill as many sacred cows as you like,” says Evans.
